Stock and Commodity Market Price Consequences of Competing 2013 MegaForces
Stock-Markets / Financial Markets 2013 Jan 26, 2013 - 11:15 AM GMTBy: DeepCaster_LLC
The Market Price of virtually any Asset is arguably primarily a result of Competing Forces.
But 2013 is Unique in that there are Especially Strong Forces impelling many markets up. And there are especially Strong Forces impelling markets Down, Catastrophically Down.
So we evaluate the prospective results of this “ Force Competition” and Forecast accordingly as follows:
Regarding the Inflation / Deflation Issue, it is widely recognized that The Fed, ECB, and now the Bank of Japan are flooding their economies with cheap paper in the form of Fiat Currencies and Treasury Securities.
Indeed, thirty-eight countries are now pursuing a Negative or Zero Interest Rate policy. What is not so widely recognized (because Official figures are Bogus) is that this flooding (i.e., Monetary Inflation) is already generating High and increasing Price Inflation (9.4% in the U.S., e.g. per shadowstats.com).
Yet there are also Sectors which are Deflating.
Thus investors who correctly identify those Sectors in which the Price Inflation is occurring can Profit immensely by riding those prices up (we identify these Sectors in our Article “Gain from Power Elite’s Key Sector Price Inflation” and our January 2013 Alerts and February, 2013 Letter recommendations). A similar strategy can be employed for Sectors whose prices are likely to fall.
For example, now there is another Huge Economy which has chosen to re-inflate one Key Sector, thus creating enormous Profit Potential: China.
China’s top securities regulators just announced China would increase by 1,000% the amount Qualified Foreign Investors (QFIIs) are allowed to invest in Chinese stocks. Prepare for another Chinese stock market launch.
On the Deflationary Force side, it is clear that the Sovereign Debts of Key Major Western Nations (France, U.K., U.S.A., as well as the Euro-Periphery Nations AKA the PIIGS) can likely never be paid; indeed it is becoming increasingly difficult to service the Debt.
But the immensely powerful creditors insist on being paid and strenuously resist “haircuts.” Results: Budget cuts austerity, riots, and lower tax revenues. A vicious, powerful deflationary Vortex. In sum, Debt Saturation, and increasing Price Inflation portend not merely Stagflation but Hyperstagflation.
In this environment Gold and Silver would be, should be, skyrocketing, were it not for Cartel (see Note 1) Price Suppression which has been generally successful in recent months. But there are several factors which portend higher prices for Gold and Silver, and soon.
First, the Central Banks have been net Buyers of Physical Gold since 2008 and the Buying is increasing. And China has now become the leading Gold Producer and Importer. And the Physical Silver market is ever tighter as has been increasingly widely noted.
But the most important recently developing factor which portends a price explosion for the Precious Metals, is that broker premiums for Physical over Spot, are now increasing! And the U.S. Mint is already sold out of Silver Eagles for 2013. So Cartel Price Suppression of the paper market is slowly but relentlessly being overwhelmed by demand for Physical.
Nonetheless, Gold and Silver’s Price ascent, while assured, will not be easy. Major Governments and Central Banks and Key Private Powers have a vested interest in the current Fiat Currencies and Treasuries system and will fight and are fighting rises tooth and nail.
Just recently, for example, the Government of India raised import duties on Gold, again. Nonetheless, Gold and Silver Bullion prices are threatening to break out to the upside again.
But what about Precious Metals Miners Stocks which are, after all, Equities?
Regarding Gold Stocks’ performance in an Equities Market Crash, consider
“Investors in gold stocks often worry about what will happen to their investments if the broad stock market fails. The worry is that the gold sector will be dragged down by the board market.
“Based on logic and historical data, this worry is generally unfounded. On a long-term basis the gold sector is inversely correlated with the broad stock market in that secular bull markets in gold equities coincide with secular valuation declines in general equities. This is the way it should be, because the demand for gold as an investment and as a store of value ramps up as central banks and governments attempt to fight the conditions associated with declining equity valuations. On a short-term basis there is no consistent relationship between the gold sector and the broad stock market. The two are uncorrelated. Sometimes they trend in the same direction, sometimes they trend in opposite directions.”
Steve Saville at Speculative-Investor.com, 1/2013
But the Greatest Force, indeed the Mega Elephant in the Markets has yet to be unleashed, but soon will be, and probably in 2013.
That Monster about to be Unchained is The Bond Market Bubble Bursting.
In their efforts to protect their Banker/Creditor/Owner Clients, The Fed, ECB and now BOJ have, and are, engaging in Bond Buying Programs AKA QE in various forms. (They claim the Motivation for this is to help the Economy).
Yes, this keeps Interest Rates low for over-indebted Sovereigns, and others, but only for a few months (or perhaps even weeks) more. But it also artificially sustains Mega Profits for the Mega Banks.
When the Bond Bubble starts to burst, likely beginning later in 2013, Interest Rates will skyrocket and Equities and Economies Tank. Hyperstagflation will have arrived.
Deepcaster and other Independent Analysts have been forecasting this Scenario for many months. But now, even leading Establishment Pros are acknowledging this prospect publicly to those with the Courage for the Truth.
Consider:
“The talk is of changing tack – even in the Fed according to its last minutes and at the Bank of England, where it is almost consensus that QE is a spent force. Once central banks stop buying, the bull market bond story is over because it is central bnaks that have been rigging the bond market, buying between 30-40 percent of all net new issuance.”
David Roche, Independent Strategy, 1/17/2013
And from the Chairman of PIMCO with $2 Trillion under Management:
“Well, the answer is sort of complicated but then it is sort of simple: They just make it up. When the Fed now writes $85 billion of checks to buy Treasuries and mortgages every month, they really have nothing in the “bank” to back them. Supposedly they own a few billion dollars of “gold certificates” that represent a fairy-tale claim on Ft. Knox’s secret stash, but there is essentially nothing there but trust. …$54 trillion of credit in the US financial system is based upon trusting a central bank with nothing in the vault to back it up. Amazing!
“When the Fed buys $1 trillion worth of Treasuries and mortgages annually, as it is now doing, it effectively is financing 80% of the deficit for free.
“The future price tag of printing six trillion dollars’ worth of checks comes in the form of inflation and devaluation of currencies either relative to each other, or to commodities in less limitless supply such as oil or gold.
“Zero-bound interest rates, QE maneuvering, and “essentially costless” check writing destroy financial business models and stunt investment decisions which offer increasingly lower ROIs and ROEs. Purchases of “paper” shares as opposed to investments in tangible productive investment assets become the likely preferred corporate choice. Those purchases may be initially supportive of stock prices but ultimately constraining of true wealth creation and real economic growth. At some future point, risk assets – stocks, corporate and high yield bonds – must recognize the difference. Bernanke’s dreams of economic revival, which would then lead to the day that investors can earn higher returns, may be an unattainable theoretical hope, in contrast to a future reality.”
Bill Gross, PIMCO Letter to Investors, 1/6/2013
Conclusion: Bonds issued by over-indebted Sovereigns (Think Japan, USA, UK, France as well as the PIIGS) are the Most Dangerous Assets to own….unless one is Short.
The time to be Seriously Short the Bond Market is coming soon.
And when the Bond Market bursts and rates rise, Equities will swoon as well.
Regarding Equities, on the flip side, the Multi-Government Stimulus via QE etc. has recently driven Equities Markets to 5-year highs. And some of the D.C. Budget Tension is temporarily diffused. So now, as we approach February, Equities are in Bull Mode. But for how much longer (see Notes 2, 3 …)
In light of the foregoing, note the following Important Equities Baselines. Do take note of three increasingly important Realities regarding Equities:
- Equities Prices-in-General are increasingly responsive to QE etc compared with the effect of Earnings reports. Of course Earnings will continue to be an important determinant of Individual Equities Price performance, but overall Equities Price levels are now more responsive to ongoing QE for the near future only. Mid to long term more QE is increasingly a Toothless Tiger so far as its capacity to boost Equities’ Prices is concerned.
- Consumer Liquidity is a major driver of Equities Prices. But U.S. and Eurozone consumer liquidity (supposedly improving in the Ostensible, but actually Bogus Economic Recovery) continues to be severely structurally impaired, and consumers are 70% of the U.S. Economy.
Consumers are beginning to put money into mutual funds again reflecting Bullish sentiment. But such high Bullish sentiment is a Contrarian Indicator. We recall one of Bob Farrell’s (legendary Merrill Lynch pioneer of Market Psychology), Rules “The public buys the most at the top and the least at the bottom.”
Regarding the prospects for the U.S. Dollar/Euro and U.S. T-Notes, T- Bonds, & Interest Rates
Beginning a week ago Friday, the $US began to anticipate, and indeed to reflect the probability of, an increase in the U.S. debt ceiling as well as The Fed’s continuing Debt Monetization to Infinity. With the ongoing Euro Crisis (temporarily) not so visible, the $US was impelled to make a major move lower, and there it bounced around 79.50 basis USDX. As we write, It has “recovered” to 80ish, but is looking weaker.
Another consequence of the Fed’s continuing Unsterilized QE ($85 Billion per month) is recent weakness in the U.S. treasuries Market with the 10-year yield bouncing in the 1.80 to 1.90% range.
A continuation of the Equities Rally would sustain the 10-year yield at between 1.80% and 2%. A Market Crash which we expect later this year would likely strengthen Treasuries and drive the 10-year yield back down to between 1.4% and 1.6%. (See our recent Letter and Alerts for Forecasts.)
Long term, given intensifying QE, the $US is likely displaced as the World’s reserve Currency by a Gold-backed Yuan. China is now the World’s largest producer and importer of Gold.
Regarding Gold and Silver, taking note of our comments above, it is not surprising that the Precious Metals have been successfully suppressed into a Trading Range by The Cartel. Just this week as we write, the CME Preliminary Open Interest Report confirms an ongoing Major Gold Price Capping Operation. But a breakout and up has already been telegraphed by the increase in Broker Premiums over Spot (the Paper Price) for those wanting to acquire Physical Metal. The question we address in our recent Letter and Alerts is “when”.
Significantly, the news out of Germany, that it will repatriate (i.e., take Physical Possession of) its 3,396 Tons of Gold which is now ostensibly being stored by The Fed in New York, might have been the Catalyst for a launch up in Gold and Silver. But that rally was subsequently aborted when it became clear Germany would only repatriate 300 tons this year and that the repatriation was planned to take 7 years.
The various Debt and Budget Crises should ensure that Gold Prices remain in an Uptrend. And when and to the extent that Risk-on Behavior and Inflation are evident in the Markets, Silver should do quite well also.
The Main Caveat to the foregoing Bullish Scenario is that The Cartel continues its relentless ongoing Campaign to suppress Precious Metals Prices. For The Cartel it is increasingly difficult to sustain Takedowns. Demand for Physical is simply too great.
Regarding Crude Oil, most important, Crude Prices continue to rise because Global Demand continues to increase Month after Month. And Crude continues to rise for all the other reasons we have earlier laid out. Therefore, we reiterate:
“If and when Equities are in Rally Mode and assuming the Money Printing continues, Crude Prices should robustly remain at least in the High $90s; they could even surge past $100, if Equities Rally robustly to their Rally Targets (forecast above) or the Mideast Wars widen.”
In sum, The Fed’s and ECB’s ongoing Price Inflation-inducing Q.E. to infinity has boosted and will continue to boost Crude Prices, until a Deflationary Event such as our forecast Great Equities Takedown.
Thus with the exception of the period of the Great Equities Takedown of 2013 when Crude Prices will slump, we expect Crude Prices will continue to trend upward, as we earlier forecast, impelled mainly by The C.B.-generated Inflation Force and ever-increasing Emerging Market Demand from China and Asia in general, especially, demand which continues to increase, albeit at a somewhat slower rate.
Considering all the foregoing, it should have become clear that Timing will likely be The Key Determinent for Profit and Loss in 2013.
And there are other Mega-Forces “competing” in 2013. Alasdair Macloed provides an excellent summary which comes to us by way of Goldseek.com and GoldenJackass.com.
- Inflation, which will pick up unexpectedly if there is a shift of preference from money to goods, the consequence being accelerating stagflation. Bear in mind that governments usually under-report inflation, and prices in the US, UK and other nations are already increasing at a significantly faster rate than CPI measures suggest.
- Interest rates, which may have to rise sooner than expected due to inflationary concerns. This being the case, an implosion of asset prices could begin if markets price in rising interest rates before they happen, destroying the ability of central banks to retain control of prices in credit markets.
- A further downturn in the US private sector economy, (excluding government).
- Rising bond yields for Spain, Italy or France.
- Deterioration in Japan’s trade balance and weakness in the yen.
- The bursting of bond market bubbles, particularly in the US, UK, Germany, Japan or France.
- Crisis meetings by governments and central banks that resolve nothing and only further public understanding of their inadequacies.
- Derivative markets, and their exposure to counterparty risk, hypothecation and rehypothecation of collateral.
- Silver markets, where there are large short positions held by the bullion banks and so are vulnerable to a vicious bear market squeeze. If this happens a sharp rise in gold prices will also be triggered, and possibly spread to other metals and beyond.
- Growing social unrest and further clampdowns on personal freedom.
“We are one year closer to a renewed banking and financial crisis, the pace of which is quickening, and which can be expected to turn eventually into a fiat currency collapse. These systemic risks increased in 2012, most notably in the eurozone, but also elsewhere. None of the solutions applied anywhere did any good.
“On the evidence to date, it has become less likely any Western government can or will take the right steps to avoid an eventual collapse of their currency, so 2013 is more likely to realise systemic failures than 2012.”
Alasdair Macleod, 12/30/2012
Deepcaster intends to continue to monitor the foregoing and issue Forecasts accordingly as 2013 progresses.
Best regards,
www.deepcaster.com
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